'Since the change from mileage-based company car taxation to a carbon dioxide-based system last year, drivers have been feeling the impact. The tax changes give a clear message – the lower the vehicle's emissions the lower the cost.
Drivers can minimise their tax bills by choosing a car which produces low emissions, either through the latest petrol and diesel technology or through alternative fuels such as liquefied petroleum gas (LPG).
However, companies have been looking at ways of side-stepping company car tax by offering alternative cash schemes that gives ownership of the vehicle to the driver.
The reaction to the tax changes was initially one of indifference, with company car drivers more often than not choosing to ignore the amendments.
This led to a few surprises when employees received their first pay packets after the introduction of the new tax.
Employees, more than ever, must weigh up a number of issues when choosing a business car: what is available, what financial packages are being offered and which solution possesses the flexibility to meet their needs?
Consideration must be given as to whether the tax implications of having a company car are greater than the cost of taking a cash alternative and purchasing or leasing their own cars.
Personal contract plans (PCP) have been promoted as a tax-efficient alternative to a company car. But is PCP the correct solution? The truth is, when the real cost of running a car is calculated – including a range of factors such as depreciation, fuel costs, insurance and maintenance – it is often not.
In most cases, companies evaluating a PCP are either looking for a solution which provides employees with total flexibility over their choice of vehicles or, alternatively, are looking to reduce the cost of providing company cars.
However, financial analysis undertaken on behalf of one of GE Capital Fleet Service's customers showed this may not be immediately possible.
The firm in question wanted to implement a cash-for-car scheme for 170 drivers and leave the employees cash neutral, but the scheme cost £410,000 more than a conventional contract hire solution over a three-year period.
Therefore, these statistics suggest that such schemes will lead to significant additional cost to either the company or the driver and the true cost of running a vehicle has not been identified. So does PCP have a future and does it achieve everything it has initially promised?
For many employees, seeking cash alternatives to company cars will mean entering into unknown territory of private motoring insurance and bills for servicing, maintenance and repair. Any financial package must provide an equitable allowance as employees will not take kindly to finding that the amount of cash available will force them to downsize from an upper-medium car to a lower-medium model.
A cash allowance will only be welcome if a driver does not feel short-changed by it – and how many companies will approve of schemes should they result in any additional costs?
Many believed the changes in company car tax would lead to a swing towards cash allowances, but it seems this has not happened.
Recent research found that two-thirds of eligible staff prefer to keep their company cars despite additional tax burden. Furthermore, the first signs are appearing of drivers discarding cash-for-car schemes in favour of returning to the company car.
Ultimately, it seems that the company car is here to stay. Whether this will change in the future only time will tell, but what is clear is that the employer and employee should explore what options are available to achieve a solution.
Car fleet operators should not introduce cash-for- car schemes without first identifying what makes the most business sense and what provides most benefit to the employee.'
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